— At an emergency midnight meeting, the Central Bank of the Republic of Turkey announced massive rate hikes to shore up the Turkish lira, which has been plummeting to successive all-time lows against the U.S. dollar in recent weeks amid a government corruption scandal and deteriorating economic fundamentals. The central bank's benchmark overnight lending rate was raised to 12% from 7.75%, while the repo rate was raised to 10% from 4.5% and the overnight borrowing rate was hiked to 8% from 3.5%. The lira surged on the news but has already given back most of its gains early in Wednesday trading.

— The Federal Open Market Committee announces its final policy decision under the leadership of Federal Reserve chairman Ben Bernanke at 2 PM ET. The widespread consensus is that the FOMC will move forward with another $10 billion reduction to its monthly bond-buying program, but the bigger question is how it might seek to modify the language in its policy statement to strengthen its forward guidance on the likely path of short-term interest rates.

— Ahead of the FOMC announcement, gold is up and the dollar is down against the euro and the yen. S&P 500 futures have been falling all morning and now point to a negative open. Treasuries are poised to open slightly lower as well. Markets in Asia rallied overnight — the Japanese Nikkei 225 advanced 2.7%, the Hong Kong Hang Seng rose 0.8%, and the Shanghai Composite gained 0.6%. European markets are rallying, led by Spain's IBEX 35.

— Shares of Yahoo! Inc. are down more than 3% in pre-market trading following the release of earnings results for the quarter ended December 31. Earnings per share were $0.46, better than the consensus estimate of $0.38, but display ad revenue fell 9% year over year to $1.9 billion, prompting concerns over the company's core business.

— President Obama delivered his annual State of the Union address last night. "There were not any big policy surprises or announcements on energy/environment policy, housing, student loans, or healthcare," says Chris Krueger, a policy analyst for Guggenheim Partners in Washington, D.C. "'Opportunity for All' was relatively light on partisanship that covered many similar themes heard in previous States of the Union (tax reform, energy independence, gun control, patent reform, etc.) that are perennial topics in D.C. each year."

— At 11:30 AM, the U.S. Treasury will auction $15 billion of 2-year floating-rate notes, marking its first new product offering in years. "Auction statistics may be hard to interpret without any historical bid/cover or indirect bids as comparison, but we expect decent participation from dealers as well as customers," say Nomura interest rate strategists. "However, we will not be surprised to see a bit of concession as dealers look to build up inventory only at attractive levels, while some customers take a wait-and-see approach at this inaugural FRN auction. Looking past the clearing level at 11:30 AM, we expect buyers of various investor classes to provide strong support for new FRN, especially on any yield spread cheapening."

— The Reserve Bank of New Zealand will announce its latest decision on monetary policy at 3 PM ET. Economists predict the central bank will leave its official cash rate unchanged at 2.50%. "Dovish lean on the meeting is increasingly strong," says Todd Elmer, a currency strategist at Citi. "We believe this gives rise to risk for New Zealand dollar strengthening beyond expectations on even a modest hawkish surprise and we believe this argues for maintaining long exposure."

— Market research company GfK's German consumer confidence indicator rose to 8.2 from last month's 7.6 reading, marking a larger-than-expected gain. "Germans consider the domestic economy to be clearly on the upturn at present," said GfK in a statement. "This is reflected in the fifth consecutive improvement in economic expectations. In the wake of this, income prospects climbed to reach a 13-year high. Willingness to buy also improved and surpassed its seven-year high of the previous month. The considerable increase in the consumer climate is further boosted by a recent slump in propensity to save."

— U.K. house prices rose 0.7% in January from a month earlier, slowing from December's 1.4% month-on-month pace of growth but surpassing the consensus estimate, which called for a 0.6% advance. The year-over-year pace of house price appreciation increased to 8.8% in January from 8.4% in December.

— South Korea's current account surplus rose to a record $70.73 billion in 2013. Meanwhile, the global economic "canary in the coal mine" also saw industrial output expand 3.4% from the previous month in December, marking the strongest gain since June 2009.

MARKET COMMENTARY

"Today's main event is the U.S. FOMC meeting, after London goes home. The Fed will probably deliver a further $10 billion in 'tapering' — cutting Treasury and MBS purchases by $5 billion each. That would surprise no one, but from India to the U.S., we are now in a global monetary policy tightening cycle, and that is likely to resurrect the bear market in Treasuries. 10-year yields, having fallen to 2.7% amid the EM weakness, will head back toward 3% in the days ahead. How fast they rise will determine how long the improvement in risk sentiment lasts, but within G-10, rising U.S. yields at a time of economic outperformance leave us wanting to be long USD.

"As for the wider picture, the turn in the Fed cycle is causing volatility in markets over-reliant for too long on super-easy Fed policy. The slow, uneven process by which a new equilibrium is reached with investors differentiating between 'carry' and genuine investment opportunities, is going to drag on for much of the year. Volatility will return."

—Kit Juckes, a global strategist at Société Générale

"We believe the ECB’s most likely next easing step could be a refi rate cut. The ECB could also add more (excess) liquidity by suspending SMP sterilisation or cutting reserve requirements. A deposit rate cut and forward guidance remain on the agenda, while we do not see a conditional LTRO as measured response to a moderate tightening of money market rates.

"Excess liquidity has come down as banks have repaid LTROs, and, in turn, the EONIA has moved higher within the ECB’s corridor. That means that the refi rate – the top of the ECB corridor – has become more effective, while the deposit rate – the floor of the ECB corridor – has become less effective. A refi rate cut is a low-risk/low-impact measure and could be seen as an easy compromise to signal that the ECB is still there, whatever it takes."

"The global equity market’s newfound volatility seems to have had a novel impact on investors: money flows related to U.S.-listed exchange traded funds are actually negative in the year to date and will likely end up in the red for the month of January. While not quite white-rhino rare, we are so accustomed to ETFs reliably (if not inexorably) drawing capital that these outflows merit a brief review.

"Through yesterday, U.S.-listed ETFs had lost $8.5 billion from redemptions. Pinpointing the culprit isn’t difficult: SPY, EEM, VWO, IWM and QQQ represent a combined $22 billion of year-to-date ETF redemptions. Putting the data in context, the easiest conclusion is that both the unusually negative ETF flows and the recent spot of volatility both have the same cause: payback for some end-of-2013 fast money flows into U.S. stocks. Market action from the Fed's announcement (Wednesday) to the next jobs report (a week from Friday) will tell us if the easy explanation is also the right one."

—Nicholas Colas, chief market strategist at ConvergEx Group

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